This article is part of our special report EU policies and the insurance sector.
SPECIAL REPORT / A pan-European pension markets product would help spur more cross-border economic activity and instill confidence in the single market amongst consumers, says Gabriel Bernardino.
Gabriel Bernardino, a Portuguese citizen, is the chairman of the European Insurance and Occupational Pensions Authority (EIOPA), an independent advisory body to the European Parliament, the Council of the European Union and the European Commission. EIOPA monitors and identifies trends, potential risks and vulnerabilities stemming from the micro-prudential level, across borders and across sectors.
He answered questions from EURACTIV’s Jeremy Fleming.
Is it your impression that the markets for insurance in the EU remain fragmented and subject to the existence of national champions?
Although Europe is making progress, the internal market for insurance is still insufficiently integrated. A true single market, also for insurance, is one of the fundamental underpinnings of Europe. And with good reason: it makes the economy stronger, creates jobs, brings better choices for consumers through more competition, and overall increases the welfare for its citizens.
However, the European insurance market is and will keep on growing. If we look at the cross-border groups for which EIOPA has a so-called college of supervisors in place, we count almost 100 of them, and there are more cross-border operating groups.
Let’s be frank, there are some 5,000 insurance companies in Europe, many of them quite small and providing services to national, sometimes even local target groups. So, not each and every insurer has to start working cross-border. There will always be a role for those small national champions. On the other hand, we should keep in mind that the bigger national champions are often also European champions.
Let me give some more figures to show that European insurance have already advanced to becoming a real international business. Cross-border insurance – measured as the foreign share in total gross written premium (GWP) – appears to be persuasive at 36%, from which 29% is from other EU countries.
Moving from country to individual firm level, the results indicate that the 25 largest European insurers are very international with 32% of GWP in the rest of Europe and 27% in the rest of the world. Banking is in fact far less international.
But this is not to say that more could not be done – including building a single market for consumers and reducing costs for insurers working in different EU markets. For instance, more can be done in the area of consumer protection measures, to achieve much better consistency in approach across EU markets.
How would you rate the European insurance sector compared with global competition?
I like to emphasise that the European insurance sector is an important and strong sector. Insurers employ almost one million people, and invest over €8500 billion in the economy.
Competition, national, European and global, is to be welcomed, because it ensures competitive (better, innovative) products and (more risk adjusted) prices.
I believe that European insurers are very well-positioned for any competition. They are able to compete also in the global arena. Comparing the main regions, it appears that the large European insurers are far more international (at 60%), than their American (at 22%) and Asian (at 4%) counterparts. It is therefore no surprise that five out of the nine global systemically important insurers are from Europe, while only three are from the US and one from China.
What attempts should or could be made to make the market more cross-border? Is there any consumer demand for such services?
The financial crisis showed two major problems. Firstly, the lack of a strong and integrated European supervision, which is necessary to ensure a true level playing field and would reflect the increasing integration of financial markets in Europe. The danger is that the weak links in the chain weaken the whole chain.
And we saw a breakdown in consumer trust, because consumers lost money and lost faith too in the supervision of financial services. The two most important concrete steps to be taken to achieve an integrated European insurance market are a single rule book, combined with consistent supervision, and the same high levels of consumer protection all over Europe.
The concept of ‘cross-border’ can only work if protection is consistent between member states. For an individual to trust his or her contributions to a provider based in another European country, he or she has to have confidence that there are consistent and high levels of protection, including a high level of transparency and relevance of the information provided. This is a crucial point: strong consumer protection across all jurisdictions is I believe a precondition for a flourishing and integrated single market.
For the EIOPA consumer, protection is the most important objective. Our work in this area has two main dimensions. We ensure that undertakings are soundly managed and have the money to fulfill the commitments made to their customers. And we work to ensure the right contracts are sold to the right people. Currently, we are mainly working on ensuring a paradigm shift towards much better transparency for consumers, reinforced fairness in selling practices, and product governance and suitability.
I believe that a great opportunity to further develop the European insurance market will be the introduction of a truly European personal pension product. In personal pensions, we are still facing a fragmented market with great diversity in the regulatory framework and no European approach at all. This is not the best for the European citizen, as great potential economies of scale that could be achieved across the whole EU are not realised. And some citizens in some jurisdictions are poorly served, with poor choices. This is in a context where we need to better mobilise savings for growth, and where individual citizens increasingly need to take more responsibility for their own retirement planning. I believe we face therefore a great opportunity.
But we need to seize that opportunity.
We need a strong and quality pension product that can be trusted, that can be sold throughout the EU to citizens of all kinds.
This will help to achieve a critical mass to decrease costs, to deliver simpler products, with transparent fee structures, to avoid conflicts of interest in selling practices and to provide good value for money for consumers.
Overall, the EU economy could benefit from such personal pensions becoming another main driver for sustainable long term investments, contributing to the Capital Markets Union, needed for speeding up economic growth and the creation of jobs, the main goals of the European Commission.